Feb 25, 2014 - income concept, which includes annual wage and salary earnings, self-employment income and ... Lifetime income (€). Lifetime earnings (€) .... the EPQ-E scale (containing 9 of the original items) in 1981.35 36. The effect of ...
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Research paper
Smoking and long-term labour market outcomes Petri Böckerman,1 Ari Hyytinen,2 Jaakko Kaprio3 1
Labour Institute for Economic Research and IZA, Helsinki, Finland 2 Jyväskylä University School of Business and Economics, Jyväskylä, Finland 3 University of Helsinki, Hjelt Institute, Helsinki, Finland Correspondence to Dr Petri Böckerman, Labour Institute for Economic Research and IZA, Pitkänsillanranta 3A, Helsinki FI-00530, Finland; petri.bockerman@labour.fi Received 21 August 2013 Accepted 3 February 2014 Published Online First 25 February 2014
To cite: Böckerman P, Hyytinen A, Kaprio J. Tob Control 2015;24:348–353. 348
ABSTRACT Objective To examine the long-term effects of smoking on labour market outcomes using twin data matched to register-based individual information on earnings. Method Twin data for Finnish men born 1945–1957 was used to remove the shared environmental and genetic factors. The results were subjected to extensive robustness testing. Lifetime cigarette consumption was measured by (cumulative) cigarette pack-years in early adulthood. The average of an individual’s earnings (and, alternatively, taxable income) was measured over a subsequent 15-year period in later adulthood. Results Smokers have lower long-term income and earnings. For example, controlling for the shared environmental and genetic factors using the data on genetically identical twins, smoking is negatively associated with lifetime income ( p=0.015). The negative association was also robust to the use of various covariates, such as education, health indicators and extraversion. Conclusions Smoking is negatively related to long-term labour market outcomes. The provision of information about the indirect monetary costs of smoking may thus complement the policy efforts that aim at educating consumers about the health costs of smoking.
Cigarette smoking is among the three leading risk factors for the global disease burden1 and one of the most important preventable causes of premature death.2 And yet, despite the adverse health consequences of smoking, the literature is inconclusive on whether continued adult smoking reflects rational, imperfectly rational or irrational behaviour.3 4 Rational smokers continue cigarette consumption because of its current benefits relative to the health risks and costs and/or because of the physiological and psychological costs of quitting. Imperfectly rational smokers may continue smoking, because they suffer from, for example, biased beliefs about the harms of smoking, present biased preferences or the inability to execute their quitting plans. The behaviour of irrational smokers is, in turn, driven by emotions, external cues and impulsive behaviour. It is successively harder to reconcile continued smoking with forward-looking rationality, the more evidence there is on the costs of smoking. If smoking turns out to have high indirect monetary costs in addition to the out-of-pocket costs of cigarette purchases and its adverse health impacts, there is less scope for smoking to be rational. In this paper, we therefore focus on documenting the consequences of smoking on long-term labour market outcomes. According to the early US evidence, current smokers earn 1–7% less than those who do not
smoke.5 6 The cross-sectional wage gap was mostly driven by those who continue smoking.7 Unobserved heterogeneity may also matter a lot for the results.8 Using a cross-sectional survey from The Netherlands, a 10% wage gap was reported while taking into account unobserved heterogeneity.9 A study using Canadian data, in turn, found that smokers earn 8% less than non-smokers.10 We contribute to the debate in several ways. First, identification of the effect of smoking is challenging, because there are unobservable factors that are correlated with smoking and the outcomes, such as earnings. This problem implies that the OLS estimation does not produce an unbiased effect of smoking on earnings. We address this problem by using data on twins.11 It allows us to better control for shared environmental factors, such as family background, neighbourhood and peer effects,12–14 and for genetic factors, which are determinants of time, risk and other preferences and personality traits. Using data on non-identical (dizygotic, DZ) twins is the same as controlling for sibling effects, because DZ twins originate from the same family and neighbourhood and share, on average, the same amount (50%) of segregating genes as ordinary siblings do. Using data on identical (monozygotic, MZ) twins allows us to further control for inherited traits and preferences, because two MZ twins are genetically identical at the sequence level. Second, a challenge that the earlier studies have not addressed is that self-reported annual earnings, or equivalent cross-sectional measures, are only poor proxies for lifetime earnings.15 16 Our sample consists of twin pairs for whom we observe accurate administrative data on their prime working-age earnings. Unlike the prior work, we can use the average of an individual’s taxable income and, alternatively, wage and salary earnings over the 15-year period as a measure for lifetime earnings. Using this average value reduces measurement error and it is not prone to non-response and reporting biases. Third, many earlier studies have used selfreported information on current smoking status as the main explanatory variable. This approach is problematic for two reasons. The comparison group includes individuals who have never smoked and also former smokers, and the negative health effects of cigarette consumption may take a long time to develop.17 We depart from earlier research and use a measure of cumulative cigarette consumption in early adulthood. Fourth, we complement the literature on smoking and (short-term) absenteeism from work.18 We examine whether the relationship between cigarette consumption and labour market activity continues to exist when a longer-term measure of individuals’ labour market attachment is used.
Böckerman P, et al. Tob Control 2015;24:348–353. doi:10.1136/tobaccocontrol-2013-051303
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Research paper METHODS Data sources and the sample Our twin sample data is based on the Older Finnish Twin Cohort Study (of the Department of Public Health in University of Helsinki), which we linked to the Finnish Longitudinal Employer-Employee Data (FLEED) of Statistics Finland. The twin cohort data and the linked data have been used previously,19 20 so the prior studies can be consulted for details about, for example, overall response rates and attrition. The Finnish Cohort Study was initially compiled from the Central Population Registry of Finland. Initial twin candidates were persons born before 1958 with the same birth date, commune of birth, sex and surname at birth.20 A questionnaire was mailed to these candidates in 1975 to collect baseline data and to determine their zygosity. Two follow-up surveys were conducted in 1981 and 1990. We linked the twin data to FLEED using personal identifiers. FLEED includes information on individuals’ labour market status, and salaries and other income, taken directly from tax and other administrative registers that are collected and/ or maintained by Statistics Finland. Such data do not suffer from under-reporting or recall error, nor is it top coded. Our analysis focuses on men for two reasons. First, men are more strongly attached to the labour market. Moreover, male labour supply decisions are much less affected by family and fertility choices.21 Second, the smoking rate has been much higher among men, especially among older age cohorts.22 To prevent early retirement from affecting our lifetime outcome measures, we further restricted the analysis to primary working-age persons. The estimating sample was, therefore, restricted to individuals who were born after 1944 but before 1958. Accordingly, the twins were aged 33–59 years over the measurement period of 1990–2004.
Measures Our proxy for the lifetime income is the logarithm of the average of annual taxable income over the period of 1990–2004. It is a broad Table 1
income concept, which includes annual wage and salary earnings, self-employment income and capital income (dividends, capital gains). It also includes income transfers and social security benefits, such as unemployment and parental leave benefits, which are often proportional to past wage and salary earnings. The proxy for the lifetime earnings is the logarithm of the average of annual wage and salary earnings over the period of 1990–2004. This income concept is narrower than our first measure, the lifetime income. Our measure for smoking is self-reported retrospective cigarette pack-years, as measured in the 1981 twin survey. We point out three things about this measure. First, it is predetermined. This is useful, because otherwise there might be a problem of simultaneity between smoking and earnings due to the positive income elasticity of cigarette consumption.4 Second, this measure allows for the potential delay in the adverse effects of smoking. Third, cigarette pack-years capture the cumulative lifetime consumption of cigarettes, as they were calculated as follows: cigarette pack-years=average number of cigarettes smoked per day×person’s age—age when the person started smoking. (Mean=5.99, SD=7.31). For example, a person has a 20 pack-year history of smoking if he has smoked one pack of cigarettes daily for 20 years. This information has been used in earlier research.23 While not perfect, the medical literature has used cigarette pack-years and it is related to smoking-related diseases.24 Because our response variables describe lifetime labour market outcomes, it is convenient to have a measure for the consumption of cigarettes that is capable of capturing an individual’s cumulative smoking by his early adulthood (ie, age 24–37). Table 1 reports average lifetime income and earnings in euros, conditional on cigarette pack-years (Panel A) as well as on the current (ie, at the time of the survey) smoking status in 1981 (Panel B) and in 1975 and 1981 (Panel C). Panel A reveals that persons with more than 10 cigarette pack-years earn, on average, less than those who have not smoked at all. Additionally, lifetime income is lower for smokers, but the difference between smokers and non-smokers is smaller. Panel B shows that when we condition on the smoking status in 1981,
Smoking and lifetime earnings and income %-Share
Lifetime income (€)
Lifetime earnings (€)
Panel (A). Cigarette pack-years (1981) Cigarette pack-years=0 10>cigarette pack-years>0 Cigarette pack-years≥10 F-test statistics
29.23 35.62 35.15
26593.69 25060.39 21664.46 71.57 (p
